Clement moves to fund BDC's existing venture portfolio

Most investors aren’t thinking this way right now, but allocating capital to support the gems in an existing portfolio makes sense, even in a recession.

You have to give Industry Minister Tony Clement credit for having the wisdom to give our friends in the Business Development Bank of Canada’s Venture Capital group $260 million over the next three years to support their existing VC portfolio. With about $431 million of mark-to-market value in their current portfolio (a cost base of $525MM), that money will go a long way. The fact that another $10 billion of BDC capital goes into traditional loans to traditional companies is a topic for another day (see prior posts “BDC Fact #1” December 1-07 and “‘Bruce’ the mindless eating machine” March 31-08).

Word was that BDC VC’s group was tapped out for many follow-ons, except when other portfolio cos had provided liquidity and capital could be recycled for other files. Rather then let his VC arm get ground down by the next series of financing, Minister Clement has ensured that BDC’s VC tank is now full of gas.

Minister Clement also announced $90 million for BDC’s own fund-of-fund program (also over three years). Although it wasn’t the $300 million that the CVCA sought (see prior post “CVCA letters to Messers Flaherty, Clement and Ignatief” December 26-08), it’s something. According to the release, this capital will “also allow BDC to commit $90 million over three years to private, independent Canadian venture capital funds.” This program will likely replicate what is already being done by EDC, OVCF and Teralys Capital. But there’s nothing wrong with that, other than the skimpy size of the allocation. For historians, BDC’s old fund-of-fund program has about $76.7 million in fund investments.

The $90 million is in addition to the $75 million that went into the late stage Tandem Expansion Fund (originally announced in the February 2008 Federal budget and again last month). Tandem hopes to raise another $225 million from the usual suspects.

Credit Minister Clement for doing the smart thing.

MRM
(disclosure – these are my own views and do not necessarily represent the CVCA’s position)